Footnote:
Nach Informationen von SSRN wurde die ursprüngliche Fassung des Dokuments May 2005 erstellt
Description:
Dynamic trading of long-dated securities exposes investors to resale price risk due to uncertainty about the future asset demands of their trading counter-parties. This paper specifically models trading and asset pricing when investors are asymmetrically informed about each other's preferences. Through a process we call demand discovery, trading reveals private information about counter-parties' preferences and, hence, about the preference-component in future prices. Demand discovery leads to endogenous joint dynamics in prices, trading volume, price volatility, and expected returns. As a result, trading volume and market liquidity are forward-looking proxies for preference risk in future prices. Demand discovery provides an alternative explanation to transaction costs for the empirical relationship between market liquidity and future returns